Nursing homes are increasingly being held responsible for identifying conditions and addressing them through appropriate care plans.
Nursing homes, which form the foundation of long-term care, present a very unique market for pharmaceutical companies. Historically, pharmaceutical companies have accessed the nursing home market through the major institutional pharmacy providers. These pharmacy providers—such as Omnicare, Pharmerica and the 3 major group purchasing organizations—would assist with pull-through by their formulary positioning and consultant pharmacists’ recommendations. This approach has fallen out of favor as a result of several Office of Inspector General and state lawsuits that considered these methods to be illegal. Nonetheless, nursing homes continue to provide opportunities for pharmaceutical companies because of their significant demand for pharmaceutical products, as well as their favorable reimbursement environment that results from the unique way that residents who are eligible for both Medicare and Medicaid (known as dual eligibles) are covered.
Rx Demand and Utilization
The demand for pharmaceutical products in nursing homes is derived from the increasing frailty of their residents, combined with a growing array of treatment options. In addition, because of improved treatments, disease states that were unheard of in nursing homes only a few years ago are becoming commonplace. Cancer diagnoses, HIV, and end-stage cardiomyopathy, all of which were once death sentences, are now being managed as chronic diseases that require a great number of treatments. In fact, the typical nursing home resident receives, on average, 7 to 8 medications each month; about one-third of residents have monthly drug regimens of 9 or more medications. This includes heavy use of medications for chronic diseases like Alzheimer’s disease and diabetes.
Although the need to treat is certainly high in nursing homes, the requirement to treat assures that these needs will be met. Due in no small part to the recent introduction of Minimum Data Set 3.0 (MDS 3.0), nursing homes are increasingly being held responsible for identifying conditions and addressing them through appropriate care plans. Take, for example, MDS 3.0 Section C, in which cognitive impairment is classified and is expected to be addressed in the care plan. Additional areas of focus include depression, pain, bowel and bladder status, and wounds.
In addition to the need and requirement to assess and treat, there is an opportunity that exists within nursing homes unlike any other market. Nursing homes are different in that trained nursing staff is present 24 hours a day, 7 days a week. This provides for skilled “eyes” to identify issues when they arise. Although these eyes are also available in the acute care setting, the nursing home has the advantage of allowing for longer-term observation of its residents. This longitudinal view is required for chronic diseases such as chronic constipation, Alzheimer’s disease, and insomnia.
The need, requirement, and opportunity to diagnosis and treat are enforced by a required adherence to therapy. Adherence to therapy for chronic diseases often sees a rapid decline over a fairly short period of time in the community, whereas nursing homes have adherence rates that are unseen in any other market because of their requirements for medication management. As nursing home residents present with their increasing inherent needs for diagnosis and treatment, ongoing management can ensure proper adherence to those treatments, resulting in demand and utilization for pharmaceuticals in nursing homes that is significantly greater than in any other channel.
Opportunities can be lost when the focus is simply on treatments initiated and rendered within the nursing home; instead, the focus must go beyond this simple approach.
A growth opportunity exists for treatments whose needs are identified within the nursing home, but which are provided outside the nursing home in a physician’s office or other outpatient setting, such as treatments for fecal incontinence and macular degeneration. This opportunity can be easily missed when simply looking at nursing home–based utilization. Consideration must also be given to the ongoing management of therapies that are initiated outside the nursing home, but whose continuation depends on the decision of the nursing home physician and staff. With this broader focus, one can begin to see the significant opportunities for pharmaceutical companies and device manufacturers in the nursing home channel.
The financial benefits for pharmaceuticals that are used in nursing homes are significant. Because the vast majority of nursing home residents are dual eligibles—meaning they are covered by both Medicare and Medicaid—they stand out in several ways. For example, there is a pharmaceutical rebate of 50% required to cover the cost of medications paid for during the coverage gap for those Medicare beneficiaries who are required to pay out-of-pocket (OOP) during the “donut hole.” Because dual eligibles don’t fall into this category, there is no rebate and their pharmaceuticals are reimbursed at a significantly higher rate.
The Medicaid-required rebate resulting from the Affordable Care Act (ACA) health care reform has increased from 15.1% to 23.1% and now includes Medicaid managed care (MC) in addition to Medicaid fee-for-service (FFS). Despite the fact that dual eligibles are Medicaid beneficiaries, their pharmaceutical coverage is under the Medicare benefit. Thus, dual eligibles not only miss out on Medicare’s 50% pharmaceutical rebate for use during the coverage gap, but also the required 23.1% Medicaid-mandated rebate. Instead, pharmaceutical reimbursement is at the contracted price less any negotiated rebates.
In addition, dual eligibles who are in nursing homes pay nothing for Medicare Part D medications, so there is no financial advantage to generic medications over branded products. This elimination of OOP expenses has been expanded as a result of ACA §1202 to include nursing home–eligible, “community dwelling” seniors. As a result, the value proposition to favor branded products over generic medications is not based on pricing, but rather on clinical merits only. However, to combat the inability to use price tiering as a means to control utilization, prescription drug plans are using more extensive utilization measures, such as prior authorization and step therapy.
Nursing Home Resident Pharmaceutical Coverage
|Who||When Rebates Apply||OOP||Mandated Rebates|
|Medicaid FFS||Always||Typically <$5||23.1% (was recently increased by 7% from 15.1%)|
|Dual eligibles (nursing home)||Nursing home eligible||$0||None|
Aligning Incentives for Efficient and Effective Care
With one focus of health care reform being firmly aimed at improvements in cost and quality, nursing homes are finding themselves under the gun. A recent study from the Henry J. Kaiser Family Foundation asserts that a 25% reduction in hospitalizations among Medicare beneficiaries residing in long-term care facilities could have yielded an estimated savings of $2.1 billion in 2011 alone. This stems from both the high cost of acute care, as well as the large number of iatrogenic complications that occur during a hospital stay. There certainly appears to be room for improvement. In one study, 58.3% of elderly patients suffered at least1 iatrogenic complication during their hospitalization. And a study published in 2000 showed that 40% of hospital admissions and 36% of emergency department transfers among 100 residents from seven Los Angeles nursing homes were considered inappropriate.
The correction of this problem has already begun for nursing homes. For example, the alignment of incentives is a cornerstone of Medicare’s Special Needs Plans (SNPs). Rather than serving all Medicare beneficiaries in a geographic region as traditional Medicare managed care plans are required to do, SNPs focus on 1 of 3 unique groups, one of which includes nursing home residents. Held responsible for patients’ Medicare Parts A, B, and D, but having the freedom to operate more efficiently than FFS Medicare, SNPs are able to operate more efficiently and effectively.
This is because SNPs can increase the availability of primary care services by having a dedicated nurse practitioner available in the nursing home. This level of availability increases the likelihood that an acute change in condition can be assessed directly onsite by a member of the primary care team rather than over the phone by an attending physician who may not be fully aware of the resident’s current status and needs. Beyond increased primary care services, SNPs can provide immediate skilled services without the 3-day qualifying hospitalization mandated by Medicare, allowing residents who require intravenous hydration and medications to receive them as needed in the nursing home setting.
The Centers for Medicare and Medicaid Services is also testing bundling of traditionally siloed Medicare payments to better align incentives. Currently under Medicare Part B, each physician visit is paid via Medicare on a pure-volume basis without regard to outcomes. Under a pilot that bundles Medicare Part A with Part B payments, the physician incentive aimed at volume-based utilization is replaced with a nursing home focused on value-based reimbursement. With the nursing home responsible for care outcomes, physician visits will have to be better managed to optimize outcomes. Not surprisingly, this has led to greater discussion related to the benefits of having salaried physicians as employees of the nursing home.
Beyond the bundling of Medicare Parts A and B payments, pilots are also being evaluated based on bundling Medicare Part A and A payments. This calls for combining the payments for acute care and subacute care, placing the total financial responsibility in the hands of the acute care hospital. This movement to control costs and improve quality will result in new structures, operations, and even stakeholders for the nursing home industry.
Navigating the Waters
Although nursing homes clearly present opportunities for pharmaceuticals, they require a clear understanding of not only the processes and stakeholders that currently exist in the space, but also of those processes and stakeholders that are emerging. The system is complex, with specific regulations having significant impact on certain providers.
For example, although there is a definite movement toward bundled payments, there are still examples where payments are separated out because of underutilization concerns that would result from a bundled payment. Such is the case for vaccines used during a Part A stay—the use of vaccines is outside of the bundled payment and as such can be billed separately. As a result of the current complex system, as well as health care reform and environmental changes, the nursing home waters present an ever-changing landscape of opportunities and challenges. But for those able to successfully navigate them, the rewards can be well worth the trip for all involved.